Software giant Microsoft Corp. is taking some heat for a controversial new licensing program aimed at businesses, school districts, and other large-scale customers.

The plan, called Software Assurance, provides a new option for large-volume purchases of popular Microsoft programs such as Windows and Office. Rather than choosing when to upgrade—a good option for districts on tight budgets—customers are encouraged to buy contracts that would give them software upgrades as they are released.

Customers may choose to forgo the plan and continue upgrading at their own pace, but they would lose the volume discounts they currently enjoy.

Microsoft bills its new plan as a way to simplify the tracking and administration of software, while keeping current on technology. The plan is intended to replace the company’s confusing “alphabet soup” of upgrade options (VUP, or version upgrade; CUP, competitive upgrade; PUP, product upgrade; and UA, upgrade advantage) and can be purchased for individual machines or for an entire organization’s PCs and servers.

But customers ranging from small city governments to large corporations have complained about the new plan. One group of British companies claims the licensing program will cost its businesses an additional $1.3 billion.

In a survey of 4,500 corporate information technology (IT) professionals, conducted by Giga Information Group and Sunbelt Software, 80 percent of respondents held a negative view of the program. The survey found that only 36 percent of respondents were considering such a change.

“They think they’re being put on a forced march, and that’s what they don’t like about it,” said Rob Enderle, an analyst with Giga.

Eighty percent of the corporate IT professionals surveyed said their costs would increase under the new program. Microsoft has said that only 20 percent of its customer base would see a cost increase, and that some customers would actually save money.

School leaders told eSchool News the new plan would not seem to make sense for most districts, which rarely upgrade their software as frequently as businesses.

The program “will [force] schools to rethink how important Microsoft Office upgrades are to them,” said Chris Mahoney, director of technology for the Lake Hamilton Schools in Arkansas. “There are many other products out there for Windows that are not Microsoft products, and when you buy them, you own them. I get the feeling from Microsoft that when you buy their product, they own you.”

Rick Bauer, chief information officer for the Hill School in Pennsylvania, noted that schools differ from corporations in that their life cycle for a computer “stretches out four to five years” in many cases. In these situations, he said, “it may not be prudent or effective to upgrade an operating system or desktop application as frequently as Microsoft directs schools.”

But Bauer is more willing to give Microsoft the benefit of the doubt.

“It will be interesting to see how this significant difference between corporate purchasing and school purchasing plays out,” he said. “I am confident that Microsoft will find a fair and equitable way to assure that schools are able to continue to upgrade their software, yet not be forced to upgrade at the tempo of the average bleeding-edge corporate concern.”

Microsoft’s manager of public relations and government affairs, Robin Freedman, said education discounts still would apply to schools, even if they are no longer eligible for volume discounts.

“Schools that are looking for easier licensing administration, as well as access to the latest technology, are encouraged to participate in the Software Assurance offering,” she said. But “regardless of which licensing program schools choose to … fit their needs, Microsoft’s academic licensing programs reflect an 85-percent discount from the retail price.”

When Microsoft unveiled its new plan in early October, it gave customers until Feb. 28, 2002, to decide whether to adopt the plan. In response to widespread customer criticism, however, the company has extended this deadline to July 31.

Bob Landefeld, Microsoft’s vice president for worldwide volume licensing, said the company decided to extend the time frame after customers said they could not make such a major decision in just a few months.

“Given the complexity and the current economic environment, customers needed more time,” Landefeld said.

Giga’s Enderle said the extra time may give Microsoft more time to sell its customers on the plan.

Microsoft is not the only company to adopt such licensing changes in recent years. Landefeld said the move is part of the company’s long-term plan of creating “software as a service” that can be upgraded regularly as changes develop, rather than with big new product launches every few years.

While that strategy makes sense in the long-term, Enderle said the software giant could not foresee the current dismal economic climate, and the purse-tightening that inevitably would ensue.

“The issue here is timing,” he said. “In hindsight, this would have been a very bad year to do this.”

Microsoft has had its share of troubles recently. On Oct. 9, the company lost an appeal to the U.S. Supreme Court, and all sides said they will focus on settling the government’s long-running antitrust case against the company.

The high court opted to stay out of the case for now, ending Microsoft’s hopes for a fresh start as it tries to avoid penalties for anti-competitive behavior. That leaves the case in the hands of a federal judge who has told the company and the government to settle out of court. “It’s back to settlement,” said Robert E. Litan, a former Justice Department antitrust chief. “This was Microsoft’s long ball that didn’t get completed.”


Microsoft Corp.

Giga Information Group

Lake Hamilton Schools

The Hill School